unemployment rate

According to Gallup’s private read on unemployment, we currently stand with an unemployment rate of 10.1%. Gallup says:

Unemployment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September — up sharply from 9.3% in August and 8.9% in July. Much of this increase came during the second half of the month — the unemployment rate was 9.4% in mid-September — and therefore is unlikely to be picked up in the government’s unemployment report on Friday.

The government’s final unemployment report before the midterm elections is based on job market conditions around mid-September. Gallup’s modeling of the unemployment rate is consistent with Tuesday’s ADP report of a decline of 39,000 private-sector jobs, and indicates that the government’s national unemployment rate in September will be in the 9.6% to 9.8% range. This is based on Gallup’s mid-September measurements and the continuing decline Gallup is seeing in the U.S. workforce during 2010.

So, when looking at the numbers we have from ADP, showing a 39,000 job loss for the month, plus the sharp spike upward in the last half of September, tomorrow’s unemployment figures from the BLS will miss most of the job losses, and will show a national unemployment rate that is smaller than it truly is.

President Obama is out telling workers at a trucking company in Hyattsville, Md that the new job numbers, 431,000 hired last month, shows the economy is “getting stronger by the day”.

Is it? It tells you something about credibility when you immediately question declarations like that, but that’s been the mantra for quite some time and it really hasn’t borne itself out as time progresses.

In this case 431,000 looks like a “good” number and seeing the unemployment rate drop from 9.9% to 9.7% would certainly seem to confirm that.

“The U.S. employment data was disappointing,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a statement. Mr. Chandler noted that private-sector job creation, a crucial measure, reached only 41,000, compared with expectations for 180,000 and a three-month moving average of 155,600.

It only had a net gain of 20,000 private sector jobs, far below the 100,000 or so jobs necessary just to maintain the employment status quo.

As for the unemployment rate:

“The fact that the unemployment rate ticked down is not really good news,” he added, “as the decline in unemployment was not a function of more jobs but a reflection of people leaving the work force.”

The lack of private sector job growth is being hidden by massive hiring by government for the census.

“These new data do not present a picture of a healthy private-sector growth, and nothing closely resembling the job growth needed to dig us out of our very deep hole,” Lawrence Mishel, the president of the Economic Policy Institute, said in a statement.

He’s right – do the math. 8 million people have lost their private sector jobs since the recession began. As Mishel points out, these numbers don’t at all indicate an economy that is “getting stronger by the day”.

“You would need to be producing 150,000 to 200,000 jobs a month to be making a dent in this,” said Doug Roberts, chief investment strategist for Channel Capital Research.

When you begin seeing numbers like that – on a sustained basis – then you have some basis for saying the economy is “getting stronger by the day”.

We added jobs last month. In fact, according to Reuters we added more to US nonfarm payrolls than we have in 4 years.

290,000 jobs were added in April (66,000 government and the rest private sector). What this points to is a number that is higher than that which is necessary to keep the unemployment percentage stable (around 140,000 a month) because of the natural turbulence within the jobs market.

On the other hand, with some adjustments, the unemployment rate itself went up .02 percentage points to 9.9% (Reuters mistakenly claims it stayed at 9.7%).

Now this is unquestionably good news. However, given that 8.2 million jobs have been lost in the recession, a few thousand a month increase isn’t going to change the unemployment rate drastically any time soon. Most see that rate coming down very slowly over years. And, as the bad news in Europe continues to grow and markets for American goods there decline, it is entirely possible that it will flatten out again or even spike a bit before it heads back down.

It certainly wouldn’t surprise me given the unsettled business climate. And, in fact, that’s what the Bureau of Economic Analysis is reporting – a record 1.6 trillion is being held while companies sort out what is happening in the business and financial sectors. That, of course, means it isn’t being spent on hiring. But there’s another reason, other than the unsettled business climate that is keeping corporations from hiring:

“Companies slashed their work forces and now find that they could function far more resourcefully than they ever realized possible,” Bianco said. “If anything, we could start to see some of the money being used to expand overseas or to acquire other companies. In either case, that does not bode well for job creation. In fact, mergers lead to job reductions unfortunately.”

A nice way of saying, it may get worse. Companies have become more efficient and productive. Because of that, most experts I’ve read expect the national unemployment rate – the U3 – to remain in the 9% area throughout the year. Government efforts to spur hiring haven’t amounted to much:

Alan Krueger, assistant secretary for economic policy at the US Department of the Treasury, points out that President Obama recently signed a jobs creation act known as HIRE which includes a variety of incentives. HIRE, for example, exempts companies from paying social security payroll tax if they hire someone who has been out of work for more than two months, and offers them a $1000 cash bonus if they retain the worker for a full year.

That’s not going to tip the scales and cause a company to hire if solid business reasons don’t dictate such action. And, as pointed out in the first cite, there’s a very good reason, at least at this point, not to hire – companies have learned to live and, in some cases, prosper without the employees they slashed.

One of the great surprises of the economic downturn that began 27 months ago is this: Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.

That means high-level gains in productivity — which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment. So long as employers can squeeze dramatically higher output from every worker, they won’t need to hire again despite the growing economy.

And right now, employers are indeed doing more with less and are not going to be inclined to hire more employees until it is clear that demand for their product is up, will continue to grow and requires more employees to produce their product and fulfill the consumer’s demand.

The Employment report has shown good numbers throughout March today release but not as good as expected by market. NFP data has posted 162.000 new jobs in march, with a revision in the previous data to -14.000 from -36.000 in February. Market expectations were 187.000 new jobs in March. Unemployment rate remains at 9.7% in March, the same February number.

Temporary help services and health care continued to add jobs over the month. Employment in federal government also rose, reflecting the hiring of temporary workers for Census 2010. Employment continued to decline in financial activities and in information.

So while +162,000 is obviously better than -162,000, the numbers aren’t really all that solid. Also remember that our economy requires about 120,000 to 140,000 new jobs a month just to offset job loses elsewhere and maintain a static unemployment percentage. And that’s pretty much what this month’s numbers show us and is the reason the unemployment percentage has remained static. What would give us a truer picture of the rate is to remove the census hiring from the numbers. My guess is we’d still be well below the 120,000 to 140,000 threshold necessary to drop that rate. But what the last three months may indicate is the labor market is finally bottoming out.

The point, of course, is that corporations are still in a position, driven by increases in productivity and lack of demand as well as an unsettled business environment, not to increase hiring any time soon. The money corporations are sitting on, as noted, is going to go somewhere – most likely to increased dividends or mergers. And mergers actually mean fewer jobs, not more. Until companies see increased, well-defined and sustainable growth in demand to the point they can’t handle it with their present level of employees, they’re not going to hire no matter how many “jobs” bills Congress passes and Obama signs.

The most recent release of unemployment data has raised some questions, namely, how can we lose 20,000 jobs in the same month that the unemployment rate declined to 9.7%. The answer is simple: The unemployment rate is essentially a made-up figure. And I can give you a much more accurate way to measure the unemployment rate.

First, let’s take a brief look at how the monthly Employment Situation figures are compiled by the Bureau of Labor Statistics. The BLS combines two surveys to compile the Employment Situation. The first survey is the Establishment Survey. That’s a pretty accurate survey, because it consists of asking businesses to provide hard payroll data on the number of existing jobs. The second is the Household Survey, which is where the train runs off the rails.

For the Household survey, they ask if you are employed. If the answer is “No”, they then ask if you if you’re actively looking for a job. If the answer is no, then they just simply take you out of the labor force. They don’t care whether you aren’t looking for work because you know there are no jobs available, or whether you’ve retired and are planning to sail a sloop across the Pacific. If you aren’t actively looking for work, you aren’t part of the labor force. So, the official unemployment rate generally understates–sometimes substantially–the real level of unemployment.

Fortunately, there is a better way to calculate the rate of real unemployment, and the BLS web site conveniently provides you with all the data you need to do it. From here, we only need three items: The Civilian Noninstitutional Population, the Participation Rate, and the number of Employed.

The first thing we need to do is figure out the Labor Force Participation Rate during the most recent period of full employment. If you take the average monthly labor force participation rate from the 70 months between Jan 04 and Oct 08, you get a participation rate in the labor for of 66% of the Civilian Noninstitutional Population.

Next, you multiply the Civilian Noninstitutional Population by 0.66. That gives you the size of the normal labor force at full employment.

Next, you take the number of Employed, and calculate the actual rate of unermployment using the following equation:

1-(Employed/Normal Labor Force)=Unemployment Rate.

So, with this method, we can compare the unemployment level of Oct 08, right before the economy cratered, to last month. When we do so, we get the following results:

Note that this calculation for Oct 08 is very close to the official unemployment rate of 6.1%. But as the economy gets worse the official employment rates show greater and greater variance. In other words, the official unemployment rate becomes progressively less accurate as the Employment Situation worsens, substantially understating the actual rate of unemployment. This is, by the way a feature of the BLS’s method, not a bug. It is no coincidence, as our Soviet friends used to say, that discouraged workers fall out of the labor force calculations.

Now, this measure I’ve explained doesn’t tell us anything about people who are working only part-time, when they’d prefer a full time job, so it doesn’t tell us much about underemployment. But it does tell us, based on the recent historical labor force participation rate, what the size of the labor force should be. Once we know that, it becomes very easy to see what the actual rate of unemployment is in real terms, rather than the notional terms provided by the Household Survey.

According the BLS, however, the Civilian noninstitutional population has increased by 2,220,000 people from 234,612,000 to 236,932,000, while, at the same time, the civilian labor force has shrunk by 2,055,000 people from 155,012,000 to 153,455,000. Using the BLS numbers, then, the labor force participation rate is 64.6%. That kind of demographic change might be expected in a couple of years when the baby Boomers begin retiring in large numbers, but for right now, it seems…counter-intuitive.

In any event, 12.5% unemployment is a far more realistic number than the BLS estimate of 9.7%.

I see that Megan McCardle thinks the unemployment numbers released today are enough to make her make her “cautiously optimistic” about the jobs picture. I’ll meet her halfway. I see room for caution, but not yet for optimism.

Ms. McArdle writes:

It’s very solidly good news: the labor force participation rate was basically unchanged, which means we’re seeing an actual decline in the unemployment rate, not a spike in the number of people leaving the labor force because they can’t find a job.

My reading of the numbers is precisely the opposite. It appears to me that teenagers, high school dropouts, and those with only a high school diploma, all of whom have high unemployment rates, did, in fact, drop out of the labor force, which led to the decrease in the employment rate.

I also think the numbers are skewed by the seasonal adjustments. The BLS adjusts the figures for seasonal changes, with extra weighting given to more recent years. Last November, the Lehman collapse led to the loss of 610,000 jobs–the largest ever recorded by the BLS–so I suspect the weighting for seasonal factors is skewed to the point where the jobs situation may look better than it actually is.

We do see an increase in hours worked of 0.6 hours, but that doesn’t really create new jobs, it just provides more hours for current part-timers.

However, temporary employment rose significantly for the 4th straight month, and it appears that the mass layoffs have petered out.

So, as far as I can tell, there may have been a bottom, but there are still some anomalies that need to be explained before I jump into the optimist camp.

And, of course, none of this even touches on the 800-pound gorilla in the room, which is monetary policy. The Fed’s policy of quantitative easing, i.e. massive increases in the money supply, still present us with hundreds of billions of dollars in low-velocity money floating around, all of which will have to be absorbed through higher interest rates, or through significant inflation. The possibility still remains that necessary credit tightening will strangle any nascent recovery over the next 12-18 months, and send the economy on a another downward leg.

It’s very solidly good news: the labor force participation rate was basically unchanged, which means we’re seeing an actual decline in the unemployment rate, not a spike in the number of people leaving the labor force because they can’t find a job.

Since the Great Depression, the peak unemployment rate was 10.8% in November, 1982. We will, in all likelihood, set a significantly higher record for the unemployment rate in the next 12 months. Here are 12 reasons why the unemployment rate will reach at least 12%.

I would also remind you that if we currently reported the unemployment rate as they did in the 1930’s, our current rate of unemployment would be around 17.2% In any event, here are just two of the most compelling reasons why the job picture is going to remain very cloudy:

For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit…

But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began…So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years.

There are other compelling reasons at the link, but the two above are enough to ensure that the unemployment rate will remain high for quite some time.